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Mitigation: new sums produce a familiar answer

Posted on Thursday, 17 November 2016 by walter

Insurers have for years been pleading with governments to protect the nation before a natural catastrophe event by mitigating the risks.

Like mothers wanting to put a helmet on their daredevil toddlers, the insurance industry has been pleading for years for governments to plan.

Dealing with disaster after it happens is a lot more expensive than mitigation. For example, Cyclone Yasi in 2011 cost the Queensland Government about $7 billion.

One dollar spent on mitigation could save at least two dollars in recovery costs. So why do Australian governments continue to spend on mitigation only 3% of what they spend on post-disaster payouts?

A new report by IAG and SGS Economics & Planning hopes to push governments into formulating and prioritising an action plan for disaster mitigation, based on quantifiable risks to the Australian economy.

The report – called At What Cost? – highlights areas of Australia at greatest risk due to their exposure, their GDP, their ability to cope with natural disasters and, most importantly, a combination of these factors.

It says $326.6 billion of GDP (20.3% of the Australian economy) and 3.9 million people (17.3% of the population) are in areas with high to extreme risk of tropical cyclones.

Bushfires risk $175 billion of GDP and the lives and livelihoods of 2.2 million people, while nearly one-quarter of the population lives in areas with high to extreme risk of flooding, placing 28.4% of GDP in jeopardy.

Storms could disrupt nearly 1 million Sydney and Melbourne commuters, at a cost of $30 million a day. A one-in-1000-year flood in the Hawkesbury-Nepean Valley northwest of Sydney could cause $8 billion in damage and disrupt state coal exports for up to six months.

Over the past six years a drop-in mining export values has coincided with cyclones, with this year’s Tropical Cyclone Stan costing the economy more than $650 million in lost exports.

“More and more of Australia’s economic activity is taking place in locations with high risk of natural perils,” the report says.

“This means economic activity and taxation revenue are at greater risk of disruption or delay.

“Governments overinvest in post-disaster reconstruction and underinvest in mitigation that would limit the impact of natural disasters in the first place.

“As such, natural disaster costs have become a growing, unfunded liability for government.”

IAG MD and CEO Peter Harmer hopes the report will change the “ad-hoc” way Australia has approached natural disasters since Europeans arrived more than 220 years ago.

“We know $1 spent on mitigation can save at least $2 in recovery costs, and sensible mitigation can help prevent future losses,” he said.

He says the report will hopefully help governments, businesses and communities make informed decisions on how to protect themselves and the Australian economy.

The industry’s mitigation message is a very powerful one. But Australian governments have long shown a total disregard for natural disaster risks.

The only question remaining is a simple one: in the face of overwhelming evidence on the value of mitigation, can governments shift their mindset from gambling against the odds to preventing the damage before it happens?